Whenever a correction or half-correction (think a 5% drop or so) hits, you should be tempted to add to a position rather than look for an exit. Indeed, if the fundamental story is still on the table and nothing much has changed about the company as well as its longer-term trajectory, such sudden drops, either due to panic or no reason at all, can act as a gift.
When it comes to discounts and corrections, they’re becoming quite few and far between of late, especially on the TSX Index, which has continued to rally strongly through the summer months.
As we enter a period of seasonal volatility (September), investors should be ready for anything to happen, including a broader market drawdown that knocks down the valuation of just about everything.
What could spark the next correction or rotation from growth to value or the sidelines remains a mystery. Either way, investors should have a Plan B before volatility has a chance to strike. And, perhaps most importantly, it’s best to have defensive positioning well ahead of time so that one might actually have what it takes to rally in a down market.
In this piece, we’ll have a closer look at one of my favourite Canadian defensive dividend stocks within the utility industry. Indeed, it’s a popular name among those looking to batten down the hatches or prepare for a smoother retirement.
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Fortis
Whether you’re looking for income or growth, a name like Fortis (TSX: FTS) really does stand out at a time like this, when most other investors would rather trim away at their defensive exposure to get in on the high-growth trade.
Indeed, with so much retail leverage after the latest AI-driven ascent in tech stocks, it’s not hard to imagine that some investors are more than willing to trim their “boring” safety positions to bolster the risk-on part of the barbell portfolio. Of course, I’m not against that if you understand the stakes. At the very least, liquidating defensive positions to shore up cash for growth plays doesn’t rely on cranking up the margin.
While I have no idea if the latest 6% drawdown will be the worst of it, I do think that the stock has some pretty strong support in the $77–78 region. With a decent quarterly result in the books (really no surprises here) and a 3.3% dividend yield, which is appreciated but certainly not all too remarkable, I wouldn’t be against buying more shares at less than 22 times trailing price-to-earnings (P/E), especially since nothing major has changed since shares peaked out back in late July, perhaps other than investors’ willingness to bear more risk for a shot at bigger gains.
Indeed, with major IPOs hogging the headlines, it feels like a bad idea to just hang onto a steady Eddie like Fortis, especially if you’re a younger investor who can afford to take more risk. Either way, Fortis stock stands out as a slow and steady way to sail to a nice nest egg. It’s also a great way to tame volatility when it hits unexpectedly.
